“More is less”: the tax effects of ignoring flow externalities

Using a model of non-linear, non-monotone decay of the stock pollutant, and starting from the same initial conditions, the paper shows that an optimal tax that corrects for both stock and flow externalities may result in a lower tax, fewer cumulative emissions (less decay in emissions) and higher ou...

Full description

Saved in:
Bibliographic Details
Published in:Resource and energy economics 2003-08, Vol.25 (3), p.239-254
Main Authors: Sandal, Leif K., Steinshamn, Stein Ivar, Grafton, R.Quentin
Format: Article
Language:English
Subjects:
Applied sciences
Atmospheric pollution
Climate change
Combustion and energy production
Economic models
Economic theory
Emissions
Energy
Energy economics
Energy policy
Environmental tax
Exact sciences and technology
General, economic and professional studies
Non-linear decay
Pollution
Pollution control
Pollution sources. Measurement results
Stock and flow externalities
Studies
Taxes
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Using a model of non-linear, non-monotone decay of the stock pollutant, and starting from the same initial conditions, the paper shows that an optimal tax that corrects for both stock and flow externalities may result in a lower tax, fewer cumulative emissions (less decay in emissions) and higher output at the steady state than a corrective tax that ignores the flow externality. This “more is less” result emphasizes that setting a corrective tax that ignores the flow externality, or imposing a corrective tax at too low a level where there exists only a stock externality, may affect both transitory and steady-state output, tax payments and cumulative emissions. The result has important policy implications for decision makers setting optimal corrective taxes and targeted emission limits whenever stock externalities exist.
ISSN:0928-7655
1873-0221
DOI:10.1016/S0928-7655(02)00037-4